Download This PaperA Critique of Akerlof’s Lemons Principle
11 Pages Posted: 19 May 2020
Date Written: September 10, 2015
Abstract
‘Adverse selection’ and ‘moral hazard’ are two problems created by asymmetric information. In this paper I critique Akerlof's Lemons principle and I raise the question that when there is a demand for new cars the question arises whether there is a possibility of an inferior good or a lemon for which there is no demand driving out the good cars? I would argue no on the basis of consumer utility and on the basis of the average demand of the buyer in the used car market where there is asymmetric information. The reason is that the consumer has the information that good cars are available for sale, which is the consumer demand and consumer choice.
Keywords: Adverse Selection, Moral Hazard, Asymmetric Information
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